Due Wednesday by 11:5pm Points 10 Submitting a file upload Assume that the follo

Question

Due Wednesday by 11:5pm Points 10 Submitting a file upload Assume that the following Comparable Sales for office properties are observed Comparable A: Sales Price $1.600,000; 1st year NOI $150,000 Comparable B: Sales Price $1,700,000: 1st year NOI $170,000 Comparable C: Sales Price $1.960,000; 1st year NOI $240,000 Comparable D: Sales Price $1.200,000; 1st year NOI- $105,000 1) Weighting all comparables equally, utilize direct market extraction to determine an appropriate cap rate based on these 4 comparables 2) Calculate the 1st year NOI for an office property with the following characteristics -Projected 1st year Potential Gross Income (PGI) of $950,000. Vacancy and Collection cost is 12% of PGI -Operating Expenses are 40% of Effective Gross Income (EGI) -Capital Expenditures are budgeted at 5% of EGI 3) Based on your answers above utilize direct capitalization (the cap rate method) to determine the value of the office property described in question 2 utilizing the cap rate from question 1.

Explanation / Answer

Q1) Cap rate for A = 150000/1600000 = 0.09375

Cap rate for B = 170000/1700000 =0.1

Cap rate for C = 240000/1960000 = 0.12245

Cap rate for D = 105000/1200000 = 0.0875

Average Cap rate = (0.09375 + 0.1 + 0.12245 + 0.0875)/4 = 0.1009 = 10.09 %

Q2)

PGI = 950,000

Vacancy & Collection cost = 12%*950,000 = 114,000

EGI = 950,000 – 114,000 = 836,000

Operating Expenses = 40%*836,000 = 334,400

Capex = 5%*836,000 = 41,800

NOI = 836,000 – 334,400 – 41,800 = $ 459,800

We have not subtracted taxes here.

Q3) Value of Property = NOI/Cap rate = 459,800/0.1009 = $4,556,987.116

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